Rising Investment in African Renewables Projects

A new report published by the UN Environment Programme (UNEP) said Kenya set a new national record of renewable energy investment of $1.3 billion in 2014, which was “more than the combined total of the preceding three years”.

In South Africa, solar power attracted the bigger share (71%) of investment last year at $3.9bn, with the $1.6bn spent on wind, the report said. A “key feature” of 2014 was the continuing spread of renewable energy to new markets which was commissioned by UNEP’s Division of Technology, Industry and Economic, in cooperation with Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance and Bloomberg New Energy Finance.

Pedro Neto, CEO and Founding Partner of Eaglestone Advisory

Investment in developing countries, at $131.3bn, was up 36% on the previous year “and came the closest ever to overhauling the total for developed economies, at $138.9bn, up just 3% on the year”.

Helen Bone of Pinsent Masons said: “This report highlights not only the focus in African economies on renewable energy projects, but also the confidence international investors have in delivery of those projects. The political and financial interests align well and there is much to look forward to for pioneering businesses.”

In terms of smaller sectors, developing countries attracted 83% of the $4.5bn invested in ‘small hydro’ projects in 2014, the report said. “Some emerging economies such as those in sub-Saharan Africa… rely on cost-effective hydro as a part of their power mix.”

“However, cost reductions elsewhere, incentives and a desire to reduce vulnerability to drought have prompted several countries to turn to other renewable power technologies,” the report said. “This in part drove the 21% decline in developing country investment in small hydro last year.”

Nevertheless, the report said Africa and the Middle East attracted $12.6bn in renewables investment last year compared to $8.7bn in 2013, increasing its share from 4% to 5%. The region was “a strong feature in utility-scale asset finance, its total rising 23% to $9.4bn.”

The report said the “principal driver of renewables financing” in South Africa is the national tender programme, which started in 2011. “In December 2014, the government announced the financial close of the third round of this programme, with wind accounting for slightly over half of the 1.46 gigawatts of winning capacity. This reflects South Africa’s wind resources, with many projects believed to have capacity factors of more than 30%.”

In addition, South Africa “was one of five countries to attract financing of solar thermal electricity generation plants, or CSPs in 2014, at $2.5bn – a 35% increase on 2013”, the report said.

In Kenya, some 90% of the 2014 financing was for the 310-megawatt Lake Turkana wind farm and the associated transmission infrastructure, the report said. “In addition, Kenya has prioritised geothermal energy, where the largest deal was a $109m loan from German development bank KfW to the Geothermal Development Company for the drilling of 20 wells at the Bogoria-Silali site.”

However, the report warned that “some older barriers have not fully vanished” in some African nations, where “the entrenched position of a national monopoly electricity company is an obstacle to the introduction of wind and solar generation”.

A study published earlier this year by the South African government-owned Council for Scientific and Industrial Research said renewable energy from South Africa’s first wind and solar plants generated a “net financial benefit” of around $702,000 for the country in 2014.

According to the World Bank’s Kenya Economic Update, investment “mainly in energy and standard gauge railways”, together with the benefit of falling oil prices, will see growth in the country rise by 6-7% between now and 2017, compared to a rise of 5.4% in 2014.